Brazil "remains the biggest worry"

[Louis Proyect <lnp3@xxxxxxxxx>]

Financial Times, Aug. 1, 2002

Brazil faces old demons
By Raymond Colitt and Richard Lapper

Is Latin America about to relive the debt crisis of 20 years ago? Even a
few weeks ago the question would have seemed excessively alarmist; now,
with currencies plunging and bond yields rising, that fate no longer looks
so remote. "This is the most hostile global environment I have ever seen,"
warns Casper Romer, a director with Foreign & Colonial, the London-based
fund manager.

Following the Argentine debt default and devaluation at the end of last
year, two countries are affected: Uruguay and Brazil.

Uruguay's decline has perhaps been the most dramatic: six months ago, its
credit rating was investment grade. But Uruguay's banks are a traditional
haven for middle-class Argentines, who accounted for about 60 per cent of
all private-sector deposits until capital controls at home forced them to
raid their Uruguayan savings. As a result, reserves have shrunk, falling
more than 50 per cent in July alone. This week bank deposits were partly
frozen as the government sought to head off a financial collapse.

But Brazil, whose economy accounts for 40 per cent of the regional output,
remains the bigger worry. Spreads over US Treasuries - a widely accepted
measure of political risk - have risen to more than 20 per cent, levels
reached in Argentina only weeks before last December's crisis. At one point
this week the Real had fallen by 15 per cent against the dollar in just
over two days.

"We were expecting volatility ahead of the elections but nothing like this
- just imagine, a dollar at R3.40," laments Vilmar da Costa, finance
director with Hering, the country's largest clothing manufacturer.


full: http://news.ft.com/home/us/



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